A guide to filing for a tax extension

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A guide to filing for a tax extension

Tax day (April 17 this year) is quickly approaching. If you haven't even looked at your W2s yet, you might be hoping for a tax extension.

Here's the good news: You can get one. The Internal Revenue Service lets people apply for an extra six months to submit their returns.

Here's the bad news: Tax extensions don't buy you more time to pay. Uncle Sam still expects his money by the April deadline. If you apply for an extension, you'll need to estimate your 2017 tax liability. If you don't owe money, cool, you have until October 15, 2018 to file. If you do, you'll have to pay that estimate by the end of this month. Otherwise, you'll face interest and a late payment fee. That penalty is usually 0.5% of your unpaid taxes per month.

So why file a tax extension?

Well, an extension spares you the penalty associated with filing late. And, yes, that's different than the fee for paying late. In fact, the late filing fee is more of a doozy: 5% for each month your tax return is late, up to a maximum of 25%.

Plus, if your paperwork is a mess, an extension can help you file an accurate return and minimize your tax liability. It can also save you some money on tax preparation. Some accountants raise their fees toward the end of tax season.

How to file for a tax extension

If you need a tax extension, you have until April 17 to file for one. Here's how to do so:

    1. Print out and mail in Form 4868. Include your estimated payment.
    1. E-file Form 4868 via IRS e-file or any tax preparer that uses IRS e-file (that includes most tax preparation software).
    1. Pay all or part of your estimated taxes using Direct Pay,
      the electronic federal tax payment system. Indicate the payment is for an extension.

What about a state tax extension?

You'll need to file for a state extension and pay estimated tax separately. The process and paperwork varies state-by-state, but it's generally pretty easy to request one. Visit your state's department or division of taxation to find out its requirements.

Dealing with a tax bill you can't afford

If you're just discovering an extension doesn't buy you more time to pay Uncle Sam — and you're freaking out — take a breath. The IRS isn't going to show up at your house and demand payment on April 18. It will know you didn't pay though, so, whatever you do, don't try to keep the shortfall a secret. Tax evasion, after all, is illegal.

File your tax returns and minimize penalties and interest by making a partial payment, asking for an installment agreement or, even, negotiating an Offer of Compromise. You can learn more about all of the options if you can't pay your taxes here.

Image: Martin Dimitrov